Will Wall Street rally to McCain?

Commentary: Giuliani had industry support, but will it move to Mac?

By

DavidWeidner

NEW YORK (MarketWatch) -- Death and taxes. Unless you're Wesley Snipes, you can't beat 'em.

Wall Street, of course, likes to wrestle with the long arm of Uncle Sam. After all, it's the industry that either set up shop in the Cayman Islands, the Bahamas, Bermuda or Delaware, or helped others to go where taxes are as low as the ethics. Capital gains and dividend taxes have been slashed during the decade, partly due to industry lobbying in Washington.

Whether or not you believe taxes are proper economic policy, it can't be argued that the financial services industry doesn't care. The securities business isn't too high on the idea that Washington may take a bigger piece of investment gains.

Where a candidate stands on the tax issue is critical to his or her support from the industry. When Barack Obama talks about eliminating tax breaks for the wealthy, you can practically hear groaning from the executive suites of the nation's biggest brokerages.

Rudy's duty

One of the mild surprises in the campaign finance numbers released by the government last week was Wall Street's support of Rudy Giuliani. The former prosecutor who once was scorned for his high-profile investigations of insider trading and financial wrongdoing did better with the industry that loathed him, than he did with retirees in Florida in that state's primary.

Before he dropped out, Giuliani collected $5.36 million from contributors who had some affiliation with the securities industry, second only to Sen. Hillary Clinton's $5.83 million, according to the Federal Election commission. Those candidates were the clear frontrunners, getting even more support than Republican candidate Mitt Romney, one of the founders of private equity firm Bain Capital.

Giuliani has thrown what's left of his support among voters behind John McCain. So far, there's little evidence the money is following -- at least from securities firms. The Arizona senator has collected just $2.1 million from Wall Street, according to the filings.

Make no mistake, McCain will need the support of the industry that consistently is among the biggest bankrollers to presidential campaigns. McCain has raised only $41 million during the cycle, compared to $88 million for Romney.

McCain is hurt on Wall Street by some of his votes, including his vote against President Bush's $1.3 trillion in tax cuts in 2001. He earned only a 55 rating out of 100 by the American Shareholders Association in 2003.

In general, McCain has earned high, but not excellent, marks from organizations that seek lower taxes such as Americans For Tax Reform and the National Taxpayers Union, according to Project Vote Smart, a Montana-based research organization.

Despite the mixed record and lukewarm support, McCain does have some assets that may push more donations into his camp. He has high-profile backers including John Thain, chief executive of Merrill Lynch & Co.
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Steven Schwarzman, the co-founder of Blackstone Group L.P.
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and Carl Icahn -- though you probably won't see him on the podium with the candidate anytime soon.

More importantly, McCain is now the front runner, and Wall Street, in its perennial quest for influence in Washington, has held true to a single criterion that may be the only one that trumps its tax test: holding its nose and going with a winner.

Big coincidence

Two cases in which suspiciously huge trades were made before deal announcements have led to two very different outcomes. Prosecutors reached a settlement in one case, and criminal convictions in the other.

The settlement was announced late Tuesday with former Dow Jones & Co. board member David K.P. Li and three of his associates. Li will pay $8.1 million of a $24 million penalty. The Hong Kong-based banker and his colleagues were accused of roles in an insider trading case stemming from News Corp.'s $5 billion purchase of Dow Jones. None of the parties admitted to any wrongdoing.

News Corp.
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is the parent of MarketWatch, publisher of this report.

Separately, former Credit Suisse banker Zubair Naseem was convicted Monday on one count of conspiracy and 28 counts of relaying insider information. He faces up to 25 years in prison for passing on inside information during a two-year span. The information led to $7.5 billion in trades, prosecutors say.

Looks as if the Feds got this one right -- even if the small-time banker is going to jail and the big shot banker is getting a fine.

The scope of Naseem's trading suggested a long-term scheme. Li, it could be argued, was a participant in single deal where he either knowingly passed on information or should have known better: He leaked the details about the Dow Jones deal more than two weeks before the deal was made public.

Should top executives be held to a higher standard? That's debatable. What isn't up for argument is that the Securities and Exchange Commission brought two of the bad guys down.

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